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. Last Updated: 07/27/2016

EC Says Tax Hikes Threaten Trade Talks

Recent moves by Russia to restrict foreign banking and hike import duties could complicate its trade negotiations with Europe and the rest of the world, the senior European Community official in Moscow said Wednesday.


Michael Emerson, head of the EC delegation in Moscow, said that President Boris Yeltsin's recent decree limiting foreign banking activity was "clearly discriminating" against most foreign banks licensed in Russia. He added that new import duties could hinder Russian efforts to join the GATT free-trade agreement.


Speaking in a telephone interview, Emerson said that the banking decree could be a setback for the far-reaching trade pact now being negotiated between the EC and Russia.


"The decree is clearly bad news in terms of the not-yet-signed agreement", he said. "But precisely how to solve the problem we are still reflecting upon".


Emerson's assessment echoed that of Deputy Prime Minister Alexander Shokhin, Russia's chief negotiator with the EC, who said earlier this week that the foreign banking decree departed from a draft trade agreement that the two sides had struck earlier this month.


Negotiators are scheduled to hammer out details of the pact next week and hope to have the agreement initialed ahead of Yeltsin's two-day trip to Brussels beginning Dec. 8. Emerson did not say whether the new foreign banking decree would upset that timetable.


Yeltsin will meet with Belgian ministers and King Albert and initial a declaration of intent for the trade pact during his visit, Reuters reported.


The agreement will give countries within the EC access to Russian markets and open up EC markets to Russian producers. It should also open the way for greater technical assistance from the EC to Russia.


Russia's trade relations with the rest of the world have been complicated by political and economic concerns. The banking decree has been seen as an effort by Yeltsin to curry favor among Russia's wealthy banks, which are playing a leading role in financing the upcoming December elections for a new legislature. The banks have strenuously objected to the foreign banking presence.


The new import duties on luxury goods, which boosted some tariffs to as much as 250 percent, are an effort to protect domestic producers and raise revenues to close the government's yawning budget deficit. Emerson said the higher import duties on luxury items could complicate Russia's efforts to enter the General Agreement on Tariffs and Trade, a worldwide free trade agreement.


Russia has been pushing to enter GATT, and negotiations are supposed to begin soon following submission by the government of its positions on the talks.


David Gowan, commercial counselor at the British Embassy, had a guarded response to the new duties, saying, "Of course any increase in import duties and excise taxes is going to be of concern to British companies".


The new banking regulations have angered foreign bankers. Yeltsin's decree, signed last Thursday, said that only foreign banks that received licenses before Nov. 15 and began serving customers could do business with Russian residents and customers. The decree apparently contradicts a draft agreement for the trade pact in which Russia promised to protect the rights of foreign banks that had been granted licenses.